Oakland's independent police review body will examine the clashes between riot officers and protesters that left an Iraq war veteran in a critical condition as Occupy protestors prepare to rally at the same spot for a third night of protests.

Police battled protesters following an Occupy Oakland march to demonstrate against the closing of two occupations in the city in the early hours of Tuesday morning. More than 100 people have been arrested in Oakland since police cleared a camp in Frank Ogawa plaza.

Scott Olsen, 24, suffered a fractured skull and brain swelling after he was allegedly hit in the head by a police projectile during the clashes on Tuesday. A spokesperson for Highland hospital in east Oakland confirmed he was critically ill after being admitted on Tuesday night.

A source at the Oakland citizen's police review board said it had not yet received a formal complaint, but would be "looking into" the circumstances surrounding Olsen's injuries. The board will decide whether to launch an official investigation over the next couple of days.

Jay Finneburgh, an activist photographer who was at the protest, published pictures of Olsen lying bloodied on the ground, while video footage appeared to show police throwing a 'flash bang' explosive close to fellow protesters trying to provide aid.

"[Olsen] stood behind me," Finneburgh told the Guardian. "I looked to my left and he hit the ground, and he hit it hard.

"A woman went to look down at him, and he was bleeding from the head. She started screaming," he said.

Video footage posted to YouTube shows Olsen lying motionless in front of a police line after apparently having been hit. A group of up to 10 protesters gather around him, but a police officer can be seen throwing a device close to the group which then explodes with a bright flash and loud bang, scattering the protesters. The video then cuts to footage of protesters carrying Olsen away as he bleeds from the head.

Olsen was taken to Highland hospital by protesters. Adele Carpenter, who knows Olsen through his involvement with anti-war groups, said she arrived at the hospital at 11pm on Tuesday night.

Carpenter said she was told by a doctor at the hospital that Olsen had a skull fracture and was in a "serious but stable" condition. She said he had been sedated and was unconscious.

"I'm just absolutely devastated that someone who did two tours of Iraq and came home safely is now lying in a US hospital because of the domestic police force," Carpenter told the Guardian.

Olsen, originally from Wisconsin, had only moved to Oakland in July, and met Carpenter through his membership of Veterans for Peace and Iraq Veterans Against the War.

Keith Shannon, who shares an apartment with Olsen and served with him in Iraq, said a neurosurgeon was due to assess him on Tuesday to determine whether he required surgery.

"It's really hard," Shannon said. "I really wish I had gone out with him instead of staying home last night."

Shannon, who is also 24, said he had seen the video footage showing Olsen lying on the floor as a police officer throws an explosive device near him.

"It's terrible to go over to Iraq twice and come back injured, and then get injured by the police that are supposed to be protecting us," he said.

He said Olsen had served two tours of Iraq, in 2006 and 2007. Olsen was in 3rd Battalion, 4th Marines with Shannon before leaving the military in 2010.

Olsen moved to the San Francisco area in July and works for Opswat, a software company, living with Shannon in Daly City, just south of San Francisco.

Shannon said Olsen was hit in the head by a tear gas canister or smoke canister shot by a police officer. He said Olsen had a curved gash on his forehead.

Veterans for Peace said Olsen was "struck by a police projectile fired into a crowd in downtown Oakland".

"Police in the majority of cities are acting with restraint and humanity towards the encampments, but Veterans For Peace will not be deterred by police who choose to use brutal tactics," the organisation said in a statement.

Oakland police confirmed at a press conference that they used tear gas and baton rounds, but said they did not use flash bang grenades. Police could not be reached for comment, but Finneburgh, who said he had been "present in many protests" where flash bang grenades had been used, said they had been deployed.

Finneburgh said he had returned to where Olsen had originally lain injured later in the evening, and close to a pool of blood had found a beanbag round, apparently fired by police. The controversial projectile, a small fabric pillow filled with around 40 grammes of lead shot, is one of the most commonly used projectiles in US policing, though it was withdrawn for 18 years after a fatal incident in 1971.

• This article was amended on 27 October 2011. The original made one reference to Veterans for Police. This has been corrected.